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HSBC and Microfinance

Ahmet D. Erelçin November 200 7. HSBC and Microfinance. Microfinance in World. Or iginated in Bangladesh in 1973 Mostly addresses non-banking population O verwhelmingly directed to women, making up % 80 of client base No collaterals, but group pressure Low delinquency rates %2-3

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HSBC and Microfinance

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  1. Ahmet D. Erelçin November 2007 HSBC and Microfinance

  2. Microfinance in World • Originated in Bangladesh in 1973 • Mostly addresses non-banking population • Overwhelmingly directed to women, making up % 80 of client base • No collaterals, but group pressure • Low delinquency rates %2-3 • UN declared 2005 as the “International Year of MF” • Yunus Muhammed & Grameen Bank received Nobel Peace Prize in 2007

  3. Microfinance in World Involvement in MF has increased from 618 institutions in 1997 to 2,931 in 2003 Client reach of MFI’s extended from 13.5 mio to 92 mio by 2004.

  4. LOW LEVEL OF INVOLVEMENT HIGH LEVEL OF INVOLVEMENT Philanthropy Downscaling – provide MF services directly Ownership or equity stakes Provide MF services through contracted MFI Provide financing and capital to MFIs Banks’ Involvement

  5. HSBC’s Global MF experience • To mark the United Nations International Year of Microcredit, five Group Offices initiated microfinance pilot projects: • India: US 5 mio line to 3 MFIs • Mexico $MX500 line to Compartamos, payroll services • Philippines & USA Opportunity card for migrant workers to transfer funds to their families • RussiaUS 2 mio line to Fund Opportunity Russia • In addition the Group has awarded grants to microfinance institutions in China and Sri Lanka

  6. HSBC Turkey’s Stance on MF • A nonprofit approach, viewed as a CSR project • Direct lending/advisory/technical assistance to NGOs • Distribution & operation belong to NGOs • USD 250k grant to cover up their set-up costs • USD 5 mio loan limit to be utilized within next 5 years • 2-Year Loan • Minimum available interest rate: TRLIBOR+1 • Interest income will be added into the loan pool.

  7. MF Policies • Max 700 YTL of loan in the first year • To be paid back in 52 weeks • Weekly or by-weekly installments • Group requirement – min. 3 members • Group members should support each project • Family members cannot be in the same groups • Voluntary Savings

  8. Breakdown of Loan Portfolio

  9. HSBC Turkey’s MF Partners - TOG • A unique approach to microfinance: whole system is based on voluntary work force. • Organised in 70 Universities with more than 8,500 volunteers • An invaluable life experience for university students as well. • Started with Samsun branch on Mar07. • Know-how accumulated will be transferred to • Trabzon • İzmir • Malatya • Kütahya in 2008. • Currently 71 members utilized 46,100 YTL

  10. HSBC Turkey’s MF Partners - TİSVA • A joint project with Grameen Bank of Bangladesh. • Grameen Bank offered managerial expertise and MIS infrastructure • First introduced in Diyarbakır and reached to 3,000 in three years.

  11. HSBC Turkey’s MF Partners - TİSVA • HSBC’s involment started with setting up Mamak branch in Dec06. • Branching out in Çankırı, Yozgat, Adana and Zonguldak. Member Loan Utilization Yozgat 50 26,200 Çankırı 25 12,600 Zonguldak 95 51,600 Mamak 236 141,200 TOTAL 406 231,600

  12. HSBC Turkey’s MF Partners - KEDV • Active in Adapazarı, İzmit and Istanbul region since 2003 • HSBC will be supporting their activities in Istanbul • Project will launch in 2008

  13. Challenges • Lack of regulatory framework • Hence, no official MFI, serviced through NGOs. • Not enough numbers of eligible NGOs to cooperate with • Cynicism on bank’s involvement • High operational and delivery costs: • Frequent visits • one-to-one relationships/coaching – labor intensive approach • cash business – no credit/specialized cards • non-banking population: cannot use alternative delivery channels

  14. Challenges • Not enough demand: • Wide cash/noncash grants from especially municipalities leads to a reluctance on “loan concept” • Deceived in the past by door-to-door ill marketing practices • Can produce, but do not know how/where to sell • Family/neighborhood pressures • Fear of bankruptcy/legal charges • Lack of support from corporates on joint projects

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